Inside Project Kilby: Chevron, Microsoft & Data Centre Power

Microsoft has secured a 20-year power purchase agreement with Chevron, as it constructs a dedicated gas-fired generation facility in West Texas.

The arrangement addresses a constraint that has become central to AI infrastructure planning: the speed at which hyperscalers can access reliable electricity.

The development, named Project Kilby, will be built and operated by Energy Forge One, a Chevron subsidiary.

It will supply electricity directly to a Microsoft data centre, lightening its reliance on the regional grid.

Chevron has developed the project alongside Engine No. 1, an investment firm that gained attention in 2021 for its boardroom campaign pressuring ExxonMobil toward emissions reduction targets.

AI demand reshapes energy infrastructure

Jeff Gustavson, Chevron's President of New Energies, says that companies like Chevron are key to enabling the AI boom.

"AI is reshaping the global economy, and abundant, affordable, reliable energy is essential to fuelling that transformation," he explains.

"Chevron is uniquely positioned to deliver power to customers with certainty, speed and at a competitive cost, leveraging Permian natural gas and our proven execution capabilities.

"This project links Chevron's traditional strengths to emerging demand, creating differentiated value for our shareholders and the communities where we operate."

Noelle Walsh, Microsoft's President of Cloud Operations and Innovation, says the agreement will help Microsoft to fulfil its ambitious expansion plans while also benefitting local communities.

"The rapid growth we're experiencing in AI and cloud, driven by customer demand, requires energy infrastructure that can scale quickly and reliably," she says.

"Our agreement with Chevron helps ensure we'll have dedicated, large-scale power to support the evolution and reliability of advanced compute.

"Through this partnership, we're delighted to grow with and become a deeper part of the West Texas community."

Investment timeline and economic projections

The agreement moves Chevron closer to a Final Investment Decision on the project. That decision is expected by the end of 2026, subject to further conditions being met.

According to Chevron, the company is targeting mid-teen returns on the development. The company expects Kilby to generate cash flow largely insulated from oil and gas price cycles.

The facility is expected to become operational by 2028. Chevron anticipates the power plant will generate more than US$10bn in state and local tax revenues.

The company also projects the project will create almost 2,000 jobs in the area.

Water use and emissions controls

The plant will draw on non-potable brackish groundwater rather than freshwater for its operations. Chevron says it is also exploring reuse of produced water from its existing oil and gas operations.

The design includes Selective Catalytic Reduction systems intended to cut nitrogen oxide emissions. The firm has also committed to limiting noise and light impacts on nearby communities.

These specifications reflect design considerations that have become standard in facilities seeking regulatory approval in areas where data centre expansion intersects with resource constraints.

Hyperscalers bypass grid interconnection queues

Kilby represents a pattern that has emerged across the data centre sector. Hyperscalers are increasingly securing dedicated, off-grid generation to meet power needs for AI workloads.

This approach allows companies like Microsoft to sidestep lengthy grid interconnection queues that have slowed other large projects.

The queues have become a bottleneck as AI training and inference workloads consume more electricity than traditional cloud applications.

The arrangement also exposes a tension within the industry. Companies have made public commitments to decarbonisation while simultaneously expanding gas-fired capacity to meet AI compute demand.

Whether Kilby proceeds depends on Chevron clearing its Final Investment Decision later this year. If approved, the facility will add to a growing number of dedicated generation projects tied directly to data centre operators rather than utility grids.